Don’t sweat the prospect of no Fed rate cuts, economist says — markets will still march higher

Markets
will
continue
to
rally
even
if
the
Federal
Reserve
chooses
not
to
cut
interest
rates
this
year,
according
to
Steven
Blitz,
chief
U.S.
economist
at
TS
Lombard.

His
comments
come
as
investors
await
the
release
of
further
U.S.
economic
data
and
closely
monitor
clues
from
Fed
officials
about
the
expected
number
of
interest
rate
cuts
in
2024.

Last
week,
the
U.S.
central
bank

left
interest
rates
unchanged
for
the
fifth
consecutive
time,
in
line
with
expectations,
keeping
its
benchmark
overnight
borrowing
rate
in
a
range
between
5.25%-5.5%.
The
Fed
also
said
at
the
time
that
it
still
expects
three
quarter-percentage
point
cuts
by
the
end
of
the
year.

The
message
fueled
a
market
rally
in
the
U.S.
and
overseas,
with
benchmark
indexes

climbing
to
fresh
record
highs
since.

Asked
on
Thursday
about
the
likelihood
of
one
or
no
Fed
interest
rate
cuts
this
year,
Blitz
said
that
it’s “getting
pretty
good.
You
know
that

0.4%
month
over
month
is
a
high
number,
and
you
know
they
are
looking
at
that.
They’re
not
just
looking
at
year
over
year.”

“Really
what
is
going
on
here
is
an
evolution,
right?”
Blitz
told
CNBC’s “Squawk
Box
Europe”
on
Thursday.

“They
[the
Fed]
have
already
told
you
they
are
not
going
to
hike
rates
to
try
to
shorten
that
timeline
of
getting
to
2%,
so
if
you’re
the
market
you’re
like, ‘well
that’s
OK,'”
Blitz
said.

“The
key
is
…
let
the
markets
figure
that
out,
rather
than
the
Fed
imposing
that
view.
Let
everybody
evolve
to
that
position
slowly,
and
then
all’s
OK.”

Traders
are
currently
pricing
in
a
roughly
55%
chance
of
a
first
Fed
rate
cut
in
June,
according
to
the

CME
FedWatch
Tool.
That’s
down
from
nearly
70%
last
week.

Blitz
said
markets
will
likely
continue
to
march
higher,
even
if
the
Fed
decides
not
to
impose
any
interest
rate
cuts
this
year
—
a
prospect
that
U.S.
asset
manager
Vanguard

named
as
their
base-case
scenario.

“It’s
a
very
big,
diverse
economy
and
it’s
a
very
big
country.
So,
you
never
have
all
geographic
regions
and
every
industry
in
every
corner
of
the
country
doing
well.
There
are
always
leaders
[and]
laggards,
it’s
just
the
nature
of
the
beast,
right?”
Blitz
said.

“The
equity
investor’s
job
is
to
pick
out
what’s
doing
better,
you
know,
where
the
value
is
but
as
an
economist
stepping
back,
you
say
no
there
is
no
reason
for
the
equity
market
to
go
down.”

Fed
Governor
Christopher
Waller
on
Wednesday
said
that
there
was “no
rush”
to
cut
the
U.S
central
bank’s
policy
rate
to
normalize
policy.

Speaking
at
an
Economic
Club
of
New
York
gathering,
Waller
cited
recent
inflation
data,
which “tells
me
that
it
is
prudent
to
hold
this
rate
at
its
current
restrictive
stance
perhaps
for
longer
than
previously
thought
to
help
keep
inflation
on
a
sustainable
trajectory
toward
2
percent.”

Separately,
Atlanta
Federal
Reserve
bank
President
Raphael
Bostic
last
week

said
that
he
now
expects
just
one
single
quarter-point
rate
cut
this
year,
down
from
the
two
cuts
that
he
had
previously
projected.

“I
think
Bostic
is
an
important
voice,
but
I
think
Waller
is
much
more
important.
I
think
he
is
sort
of
considered
a
bit
of
the
alter-ego
of
[Fed
Chair
Jerome]
Powell
so
when
he
says
something
the
markets
should
react
to
it,”
Blitz
said.

“To
be
fair
to
the
Fed,
which
I
don’t
have
to
be,
but
to
be
fair
to
the
Fed
they
are
kind
of
evolving,
and
they
are
doing
the
right
thing
by
not
rushing
in
either
direction.”

Blitz
said
the
Fed
will
be
prepared
to
cut
rates
if
the
world’s
largest
economy
falls
apart
after
June,
but
warned
that
the
optics
of
such
a
move
could
become “very
difficult”
in
the
second
half
of
the
year,
citing
the
upcoming
presidential
election
in
November.

“If
they
do
cut,
it’s
because
inflation
is
lower
and
they
don’t
want
to
passively
get
more
restrictive,”
Blitz
said.

“If
you
think
about
it
in
terms
of
the
politics
of
it,
which
we
can’t
avoid
this
year
in
the
U.S.,
if
they
cut
rates
simply
because
inflation
is
lower
but
the
economy
is
still
doing
well,
the
optics
of
that
is
that
he’s
part
of
the
committee
to
re-elect
[President
Joe]
Biden,
right?
So,
even
though
we
all
understand
the
reason
why
they
are
cutting
because
inflation
is
at
3%
rather
than
4%,
etcetera.”

Asked
whether
that
may
be
one
reason
why
the
Fed
won’t
be
able
to
wait
too
long
to
cut
rates,
Blitz
replied, “Exactly.
And
that’s
why
the
market
is
sitting
there
with
a
two-thirds
probability
of
a
cut
in
June
because
this
kind
of
cut
they
can
only
do
by
June,
and
after
June
the
window
to
do
that
is
shut.”